Fears about the price at the pump spiraling out of control have faded as national gasoline prices have steadily dipped, giving cash-strapped consumers a bit of relief.
Analysts chalk the modest declines up to economic concerns and seasonal factors and some believe the national average price of gas may eventually dip below $3 a gallon.
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But don’t get too accustomed to the more modest prices because as long as the U.S. economy avoids a double-dip recession, they likely won’t last much longer than the first few months of 2011.
“We better enjoy what we see for the next few weeks because I do think we’re going to see a lot of upward pressure on crude, gasoline, diesel and heating oil prices,” said Tom Kloza, chief oil analyst at the Oil Price Information Service.
Prices Dip as Recession Looms
Just how much has the price of gasoline tumbled? According to OPIS, the average U.S. pump price slid to $3.455 a gallon on Thursday – the lowest level since March 3. That represents a 13% decline from the 2011 high of $3.985, which was set on May 5, and is down from $3.556 a week ago and $3.612 a month ago.
How much consumers feel these declines matters largely on where they live. Some geographical areas like St. Louis have seen prices tumble below $3.00 a gallon, while cities at the edges of the country are stuck with $3.75 gas.
At $3.193 a gallon, South Carolina posted the lowest average price of gasoline on Thursday, down from $3.386 a month ago. On the other hand, Oregon drivers are paying an average of $3.806 per gallon, good for the highest average price in the continental U.S.
“There’s tremendous diversity right now,” said Kloza, who attributed the higher prices to being near areas where the most expensive crude exports arrive.
The reprieve in gas prices has been driven by a number of reasons, including financial markets pricing in the threat of a double-dip recession in the U.S., which would seriously erode demand for gasoline.
“At any moment we might wake up and find out we’re in a recession or Europe’s in a recession. That really is intimidating the buyers,” said Kloza.
Underscoring that concern, crude oil futures have retreated 7.51% so far in September. While prices have rebounded a bit this week, Thursday’s settle of $82.14 is good for the 7th lowest close of the year.
Brent crude, which is now seen as the better gauge of demand for global oil, has slumped almost 10% in September and is off 18% from its 2011 high of $126.65.
“We’re seeing a general economic malaise. If consumers aren’t healthy enough to buy gasoline at the pump, there isn’t going to be demand for crude oil to turn into gasoline,” said Hamza Khan, an analyst at the Schork Report.
Short Reprieve or Longer-Term Slump?
The energy markets are also taking their cues from the calendar, which has now moved beyond the peak driving season.
“Seasonally, we’re in that time of the year where driving demand tends to come down. We’re past summer vacation and everyone is back in school,” said Darin Newsom, senior commodities analyst at DTN.
So how much lower will prices go?
Newsom believes the national average price at the pump could flirt with $3.00 a gallon if the recent trend holds. He said the traditional trough in the market is in mid-February and it typically takes the markets some time to rebound.
Kloza is more cautious. As long as there is no economic contraction, he said speculative demand, the threat of a second Arab Spring and seasonal factors may cause a steep rebound before long.
“My fear is that it’s going to give way to a surge in prices that will begin at some point of the fourth quarter and proceed like it typically does in the first 100 days of 2012,” said Kloza, who predicted an “uglier” rise in prices than the one that ripped through the markets this year.
It’s important to remember that while gas prices have eased, they aren’t exactly “low.”
Even with the recent retreat, gas prices are still up 28% from a year ago and OPIS estimates U.S. motorists are spending about $1.3 billion every single day at the pump.
In fact, the U.S. is still on track to spend almost $490 billion on gas this year – the most in history.
“The year to beat is 2008 – and we know how that ended,” said Kloza, alluding to the epic collapse in the energy and stock markets that year.